NFTs: How To Buy One
A Beginners Guide to Buying an NFT
Once you know what an NFT is (read about what an NFT is here), you might well be interested in purchasing one for yourself. However, unless you’re one of the 4% of people globally estimated to currently own crypto assets, you are probably wondering how you go about doing it.
To help you out, Ruby Dyce went through the process to get to grips with the new technology. Find Ruby’s account in three simple steps below, as she distils the process.
Step 1 – Obtain cryptocurrency
In order to buy an NFT, you first needed to purchase some cryptocurrency.
Some non-cryptocurrency based methods of payment for NFTs are starting to be introduced. For example, in January 2022 MasterCard announced they plan to introduce a system to allow MasterCard users to purchase NFTs via a specific marketplace. However, these methods are often more limited in scope as to where and how the NFT can be bought, so for maximum flexibility, we went with the traditional route of cryptocurrency.
Probably the most well-known cryptocurrency is Bitcoin. However, the best bet when it comes to purchasing cryptocurrency with the aim of buying an NFT is to buy Ether, commonly abbreviated to ETH. Ether is the cryptocurrency of the Ethereum blockchain. Whilst ETH is similar to Bitcoin in that it is a currency, the Ethereum platform goes much further than this and offers a range of applications outside of monetary transactions, such as smart contracts, decentralised apps and, you guessed it, the creation and sale of NFTs. As a result, the vast majority of NFTs are Ethereum-based and ETH therefore is the cryptocurrency to use.
There are a number of ways to buy cryptocurrency. For beginners, a well-known online exchange will probably appeal, as they are accessible, easy to use and generally safer. Some key names are Coinbase, Binance and eToro. We went with Coinbase.
These popular exchanges are usually presented via a user-friendly app. I had to set up an account and upload a form of ID as proof of identity. Once this was done and my ID accepted, the next steps to buy some cryptocurrency were surprisingly straightforward. I clicked ‘Buy’ and selected the chosen currency (as above I opted for ETH). The rest was much like completing any other online or app purchase.
I decided to buy £10 worth of ETH to start with. After paying a transaction fee of £0.99, I ended up with £9.01 equivalent to a slightly disappointing total of 0.00374724 ETH, and was ready to move onto step 2.
Step 2 – Find a crypto wallet in which to store this currency
To make a purchase with my newly acquired cryptocurrency, I needed to use a ‘crypto wallet’, a decentralised storage facility. The wallet does not store the crypto assets themselves, as these are units on the blockchain, but the private ‘keys’, alphanumerical passwords which protect and give access to these crypto assets.
You might be wondering why I needed to transfer my ETH to a wallet, given I had already bought it. To understand this, it is important to remember that the value represented by digital assets can only be accessed using the private key. If currency is stored on an exchange, then this exchange has access to this private key and therefore control over the currency. In addition, online exchanges only allow for the buying and selling of cryptocurrencies (although Coinbase is developing an NFT function). A wallet, on the other hand, allows for purchase and storage of all kinds of crypto assets, including NFTs.
There are two key types of wallet – cold and hot. Cold wallets store private keys offline, such as on a USB drive, a computer that is offline or even written down on a bit of paper. These kinds of wallets are safer in the sense they are harder to hack into and steal, but are also impractical given that the crypto assets they protect can only be used online. Hot wallets store the keys online, such as on an app. These are less safe, but better for actually using the assets.
Given I wanted to use the cryptocurrency to purchase an NFT, I opted for a hot wallet. Popular hot wallets include MetaMask, Electrum and Trust Wallet. For simplicity, I used Coinbase’s own ‘wallet’ app, Coinbase Wallet. Again, this can just be downloaded as an app in the usual way.
The transfer process was slightly more complex as it quickly became apparent that fees would be charged to transfer the 0.00374724 ETH to the wallet. There was a network fee (a ‘gas’ fee required by the network for a user to interact with the network) and also an additional commission charged by Coinbase as a percentage of the transfer amount. There are ways to reduce the fees paid, by dealing in greater amounts or using a different platform such as those aimed at professionals or decentralised exchanges. However, for those just starting out, this should be balanced with the simplicity and ease provided by popular exchange apps such as Coinbase.
I made an initial transfer of £5 worth of ETH, which incurred a transaction fee of £1.67, leaving me with a balance of just over £3 worth of ETH in the wallet. It was then time to complete the final step.
Step 3 – Buy an NFT
Armed with the grand total of £3 worth of ETH, I went on the hunt for my preferred NFT.
Similar to crypto exchanges, there are a range of NFT marketplaces that can be used in an app-based, easily accessible format. Options include Rarible, SuperRare or Binance NFT Marketplace. I went with OpenSea, which is the largest NFT marketplace by trading volume.
Most of these marketplaces function in the same way as eBay. NFTs can either be bought straight away at a fixed price with a ‘quick buy’ option, or are sold by way of auction, where buyers put in bids and the NFT is sold to the highest bidder at the end of the given bidding period.
The NFTs range in price from the hundreds of thousands to free – although bear in mind that fees will be charged on top of this to process the transaction, so no purchase is ever free. These ‘gas fees’ pay for ‘miners’, which are the computing systems that facilitate the transactions. OpenSea has one of the more straightforward fee systems, where 2.5% is charged on every transaction, but this varies depending on the marketplace used.
The final step was to select and purchase an NFT. Selection may well be the most challenging part of the whole exercise, given that popular NFT collections have up to 10,000 NFTs, and OpenSea alone has tens of millions of NFTs. Once selected, the transaction process was simple enough, and familiar for those used to making online and app purchases whether by auction or simple purchase.
If you’ve followed the steps above, then you should hopefully be the proud owner of your very own NFT. What next? Well, at the very least you have participated in a new craze and have supported an artist or other creative. And you never know, with estimates for NFT trading in 2021 ranging from $21 to over $40 billion, you might even be lucky enough to see your investment grow in value.
So after all that, here is my NFT:
Bitcoin with crows #7, by IANAA (IANAA – Profile | OpenSea), as described by the artist:
“Based on Van Gogh’s painting “Wheatfield with Crows”. Limited Collection 1+10. What if Van Gogh were a crypto evangelist? Let’s see it.”